Question
Use Excel to do the following steps of exercise 1.In the Table below I have given you a bond with Coupon = YTM initially (columns
Use Excel to do the following steps of exercise
1.In the Table below I have given you a bond with Coupon = YTM initially (columns 1 and 3). Then, in Col 2, I am increasing the time to maturity. Calculate the Duration for each maturity and report them in Col 4. Assume annual coupon cash flows.
2. In the next part of this question, I have reduced YTM to 6.75% (in Col 5). For the same maturities, now calculate the durations and report in Col 6. Once you have done that answer the following questions:
Col 1 | Col 2 | Col 3 | Col 4 | Col 5 | Col 6 |
CPN% | MATURITY | YTM% | DUR | YTM% | DUR |
11.75 | 3 | 11.75 |
| 6.75 |
|
11.75 | 7 | 11.75 |
| 6.75 |
|
11.75 | 10 | 11.75 |
| 6.75 |
|
11.75 | 20 | 11.75 |
| 6.75 |
|
11.75 | 30 | 11.75 |
| 6.75 |
|
(a) What is the relationship between duration and time to maturity based on Col 4 results?
(b) What do you conclude about duration when comparing Col 4 to Col 6 results
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